Sunday, October 31, 2010
Mary Orndorff
U.S. Rep. Spencer, chairman of the House Subcommittee on Financial Institutions and Consumer Credit, and the rest of the Republicans -- and one Democrat -- in the Alabama delegation have co-sponsored bills to permanently repeal the estate tax.
WASHINGTON -- The number of Alabama families that have had to pay federal estate taxes has dropped steadily this decade, from 1.2 percent of deaths in 2000 to .2 percent last year, according to IRS data.
In 2009, only 108 estates in Alabama owed the tax after a death moved the property and assets into someone else's hands through inheritance. That was down from 530 in 2000.
The decline is by design and is happening across the country. Congress in 2001 began the gradual repeal of the estate tax, and this year it is completely phased out. But that repeal expires at the end of the year. Whether the estate tax comes back in 2011 -- and at what rate -- will be debated on Capitol Hill in the coming weeks.
If Congress does nothing, the estate tax will return next year for estates worth more than $1 million per spouse, and they will be taxed at a rate of 55 percent. At that dollar amount, the tax would affect far more families than it has in recent years, and both parties in Congress say they do not want that to happen.
At the other extreme, if Republicans retake the majority in the U.S. House after next week's elections, their agenda calls for a permanent repeal of the estate tax.
U.S. Rep. Spencer Bachus, R-Vestavia Hills, and every Republican in Alabama's congressional delegation has co-sponsored legislation to permanently repeal the estate tax. So has Rep. Bobby Bright, D-Montgomery. But previous attempts at permanent repeal have failed, even when the GOP controlled the White House.
President Barack Obama has instead proposed allowing the tax to return for estates worth more than $3.5 million per spouse, or a total of $7 million. The rate would be 45 percent, which is the 2009 rate.
In 2009, according to the IRS statistics, 272 estates in Alabama were subject to about $1.6 billion in estate taxes. But after deductions for spouses and charitable bequests, and after expenses and debts are paid, the net estate tax liability in Alabama last year was $178 million on 108 estates.
Nationally, about 33,500 estates worth a total of $194 billion were large enough to trigger the estate tax in 2009. But after deductions, about 14,700 of them paid $20.6 billion in net estate taxes, according to the IRS.
The number of estates subject to the estate tax is smaller than most people realize, said Steve Wamhoff, legislative director of the Citizens for Tax Justice, a Washington nonprofit that favors a return of the tax as a way to generate revenue for government services from the wealthiest in America.
"It is one of the most misunderstood things in the tax system and that's really saying something," Wamhoff said.
A third proposal, endorsed by Citizens for Tax Justice, would keep the $3.5 million per spouse exemption but increase the tax rates for the largest estates. For example, estates from $3.5 million to $10 million would be taxed at 45 percent; $10 million to $50 million at 50 percent; and over $50 million would be 55 percent. Known as the Responsible Estate Tax Act, the bill is pending in the U.S. Senate.
Both U.S. Sens. Richard Shelby and Jeff Sessions have voted in the past to permanently repeal the estate tax.
"We hope that Congress does deal with this sooner rather than later. They need to do something before the end of the year," Wamhoff said.
Join the conversation by clicking to comment or e-mail Orndorff at morndorff@bhamnews.com.
October 2010 Archives
Friday, October 29, 2010
CTJ responds to Tax Foundation attack in US
Original Post
For those with an interest in the unreasonable claims of tax lobbyists in the U.S., this latest report from Citizens for Tax Justice, in its usual wry style, neatly skewers some of those arguments that have been put forward. This is somewhat involved, so probably only for connoisseurs of U.S. tax details. Click here.
It is also worth reading their recent How to Enact (and Maintain) Tax Reform.
Report: Few hit by 2008 estate tax
By Jay Heflin - 10/22/10 03:30 PM ET
Original Post
Using data from the IRS, a report by Citizens for Tax Justice (CTJ) found that 0.6 percent of deaths that occurred in 2008 were hit by the estate tax.
Under President Obama's proposal, which extends the 2009 law, fewer taxpayers would be subjected to the tax, the report found.
Estates in 2008 worth more than $2 million (per spouse) were hit with a 45 percent tax.
In 2009, the exemption level jumped to $3.5 million per spouse while the tax rate remained constant. Because of the increase in the exemption level, CTJ concludes that Congress adopted Obama's proposal so fewer estates would be subjected to the estate tax.
A copy of the report can be found at: www.ctj.org/pdf/estatetax2010.pdf.
Meg Whitman’s Projected Capital Gains Tax Windfall
Original Post
10/21/2010 - 12:17pm
By Lenny Goldberg
California Tax Reform Association
California appropriately treats all income the same for tax purposes, whether earned by wages, salaries, interest, dividends, rent or capital gains. Meg Whitman would continue to tax all income except capital gains. Her proposal to eliminate the tax on capital gains says, in effect, that your income is taxed and mine is not.
By not taxing her income and those of other wealthy investors, of course, the state loses between $4 and $5 billion yearly. 82% of that would go to the top 1% of taxpayers, and 95% to the top 5%, according to Citizens for Tax Justice.
We estimated, using proxies for her wealth and her investments, that she would save between $8 million and $40 million by eliminating the tax on her capital income over four years. That’s a wide range but her failure to release her tax returns means that we can only estimate the savings, of which $8 million is a very low end. That report is available here.
Her response: Why would I spend $140 million running for Governor to save $15 million? Good question.
And the answer lies directly in her form 700, which details her investments. Bain Capital Management, run by Mitt Romney. Goldman Sachs. Carlyle Group. Blackstone. Hedge funds, private equity firms, venture capital, partnerships—all seeking capital gains.
So, no, it’s not just for her. It’s for the entire private equity industry, which buys and sells companies and seeks tax advantage every where it goes. Remember the hedge fund fight in Congress? The poor hedge fund managers wanted to count their income as capital gains, to be taxed at a lower rate. Eliminating tax on capital gains as ordinary income is just another tax break the private equity and hedge fund industry is seeking through their champion, Meg Whitman.
These investments have nothing to do with California—many of her partnerships are global investments. That’s what investors do, they invest globally—but to claim that this leads to jobs in California has no analytical or empirical basis whatsoever.
Does it drive millionaires and entrepreneurs from the state to pay state tax on their global gains? California has more of the Forbes 400 than no-tax Texas, Florida and Nevada combined, with smaller population. Millionaires grow in California with the economy, and take advantage of our entrepreneurial climate.
Should a discussion take place about the best ways to improve California’s economy? Absolutely. But rewarding global investment by very wealthy Californians, at a cost of billions to the budget, is not a credible part of that important discussion.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Lenny Goldberg is Executive Director of The California Tax Reform Association (CTRA) is a small non-profit organization based in Sacramento, California. CTRA has advocated for many years for fair taxes in the context of a healthy public sector.
October 21, 2010
A U.S.-Panama business group is planning a new push to lobby the Obama administration and Congress to secure the approval of the long-stalled U.S.-Panama free trade agreement, according to a Panamanian private-sector source.
The U.S.-Panama Business Council will hold meetings in Washington on Nov. 18-19 with U.S. lawmakers, State Department officials and members of the U.S. private sector, this source said. He did not provide further information on what the group planned to discuss during these meetings.
Panamanian sources said the primary obstacle to the passage of the U.S.-Panama FTA remains the demand by the U.S. that Panama sign a tax information exchange agreement (TIEA) with the U.S.
Panamanian Vice President Juan Carlos Varela and U.S. Trade Representative Ron Kirk discussed the tax transparency issue during a Sept. 30 meeting in Washington, according to USTR spokeswoman Nkenge Harmon.
The two officials also discussed U.S. concerns with "certain aspects of Panama's labor regime," Harmon said in an e-mailed statement.
One Panamanian source said during this meeting the U.S. sought to entice Panama into signing a TIEA by saying that in exchange it would allow a tax deduction for U.S. business travelers who visit Panama for conventions, seminars or other meetings.
Such a deduction is currently available for domestic travel, as well as travel to Canada, Mexico, Costa Rica, Guyana, Honduras and some Caribbean destinations, according to Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice. However, this deduction is not available if such meetings are held on cruise ships, Wilkins said.
Such an agreement would require the Panamanian government to hand over information on Panamanian bank accounts used by U.S. persons upon request by the U.S. government, which goes against current bank secrecy laws in Panama, they said.
Panama is currently listed on the Organization for Economic Co-operation and Development's "gray list" because of its status as a tax haven. In order to secure removal from the list, a country needs to implement 12 TIEAs or Double Taxation Treaties (DTTs) with full tax information exchange provisions (Inside U.S. Trade, June 11).
As of Oct. 20, Panama had signed nine such DTTs, according to a press release from the office of Panamanian President Ricardo Martinelli. Panamanian sources said three additional DTTs have already been negotiated and their signing is expected before the end of the year.
According to one Panamanian source who opposes the signing of a TIEA with the U.S., a recently passed U.S. law already would require some Panamanian banks to report information automatically on U.S. account holders.
The Hiring Incentives to Restore Employment (HIRE) Act, which President Obama signed on March 18 and is slated to go into effect on Jan. 1, 2013, includes provisions that will require foreign banks that do business with U.S. banks to report information on U.S. account holders in one of two ways, according to Wilkins.
The first option is for these banks to submit a Form 1099 to the Internal Revenue Service that would report the income earned on the U.S. account. The second option is for these banks to fulfill more stringent reporting requirements contained in the HIRE Act, under which the banks would not have to report the total income on the account but would have to provide information on the maximum amount in the account and the aggregate amount of transactions on the account.
In both cases, the banks would have to report the name, address and taxpayer identification number of the U.S. account holder.
Asked if these reporting requirements would make information exchange provisions in the TIEA redundant, Wilkins said this would not be the case. While the HIRE Act provisions would be helpful because they could aid the U.S. in identifying tax evaders by name, the TIEA provisions are also necessary because they allow U.S. authorities to request Panamanian authorities hand over any information about U.S. account holders upon request, Wilkins said.
One Panamanian source said the government had recently implemented a change to its law that would allow Panama's tax agency to gather information on account holders if such information is requested by a foreign government under the DTTs Panama is signing with other countries. He explained that this change was necessary in order to implement the tax information exchange provisions chapters of these DTTs.
TIEAs spell out in great detail the procedure for exchanging tax information between two governments. For example, the TIEA between the U.S. and the Cayman Islands consists of 13 detailed articles in information exchange.
By contrast, the OECD Model Tax Convention Article 26 Panama wants in a DTT with the U.S. is comprised only of five sections outlining basic commitments (Inside U.S. Trade, June 11).
Panamanian sources this week acknowledged it was unlikely Congress would approve the FTA during a post-election lame duck session due to lack of sufficient time. However, one of these sources said the chances for passage would be better next year based on the assumption that the incoming Congress, which is polls indicate will have more Republican members, will be more in favor of free trade.
This source also said he thought Congress would approve the Panama FTA before the U.S.-Korea FTA despite the fact that President Obama has set a timeline for resolving outstanding issues with the Korea FTA by mid-November, and has said he would look to submit the South Korea agreement to Congress in the months following that.
This source based this impression on the fact that the U.S.-Panama FTA is less controversial than the Korea FTA because Panamanian producers do not compete with U.S. producers in any major industries, and because the Panama agreement was signed before the South Korea agreement.
David Cay Johnston
Oct. 20, 2010
Who benefits from the taxes we pay seldom gets examined, but two reports on the redistributive effects of taxes and transfers shed some revealing light on this issue. One report deals with the United States and the other with Canada.
In America, taxes and transfers have a significant impact on income inequality, which has been rising since 1980, according to a report by Thomas L. Hungerford of the Congressional Research Service. You can see the report here.
Hungerford warns that new tax policies, aimed at bringing what we levy in line with what we spend, need to be evaluated in terms of the redistributive effects to avoid unintended consequences.
But for taxes and transfers, America would be the 19th most unequal nation in the world, if you apply Hungerford's data to the annual CIA World Fact Book report on income inequality.
Inequality, keep in mind, is the result of many factors, including how government rules shape economic outcomes. Policies that artificially raise prices, for example, or that favor some with quality education affect how much money individuals can save, make in profits, and earn in the labor market.
Hungerford's report uses the standard Gini index to examine equality. If everyone had equal income, the Gini number would be zero, while if one person had all the income, it would be 100, at least for the few minutes before hunger prompted us all to revolt.
Hungerford's report shows that before taxes and transfers, American household income has a Gini figure of 51. That would put us in the same economic equality neighborhood as El Salvador, Papua New Guinea, Zambia, and Niger -- not exactly the kinds of countries we imagine being akin to American values or economic success.
After taking into account taxes and transfers, like Social Security, the Gini index drops to 43. That puts us in the hardly more desirable neighborhood of Nicaragua, Cambodia, Kenya, Thailand, Russia, and Senegal, all with Gini indexes from 43 down to 41.
The CIA, by the way, puts the United States Gini at 45, slightly higher than Hungerford's analysis for Congress. (For the CIA report, see https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html.)
And what of those countries most like America in terms of culture, economics, and wealth? What of those countries we think of as modern industrial societies, the ones we compete with in the global economy? Japan comes in at 38. Much more equal are Canada, Spain, Italy, and the European Union as a whole, which are all around 31 or 32. Germany is at 27, while we find Norway, Sweden, and Denmark between 23 and 25.
Hungerford goes on to detail how nine tax law provisions have redistributive effects, five of them decreasing inequality and four of them increasing it.
In order of significance, the progressive effects come from the child tax credit, the earned income tax credit, the exclusion of all or some Social Security income from taxable income, the alternative minimum tax, and the phaseout of personal exemptions and itemized deductions for higher-income taxpayers.
The regressive results come from reduced rates on capital gains, itemized deductions, reduced tax rates enacted during the Bush administration, and tax-exempt interest on municipal bonds.
Amazingly, the four regressive items are significantly larger than the progressive ones. In fact, they are 43 percent larger.
Hungerford's analysis also shows that transfers have a greater redistributive effect than taxes.
This brings us to the Canadian study, "Canada's Quiet Bargain: The Benefits of Public Spending," which asks the audacious question, "Are taxes saving you money?" (For the Canadian report, see http://www.growinggap.ca/files/Benefits%20From%20Public%20Spending.pdf.)
The authors of the study, which was based on Statistics Canada's data and simulation models, say that it "adds a dimension that has been missing to the public debate over taxes and public spending in Canada. It weighs the benefits of public services provided by federal, provincial, and municipal governments against the benefits of recent tax cuts."
That issue is also largely missing from American debates -- what are the losses in public benefits because of tax cuts, and how do the benefits of public spending stack up against the benefits of reduced taxes?
The study comes from the Canadian Centre for Policy Alternatives in Toronto and is designed to build public support for government spending and weaken support for tax cuts, which is not surprising given that public employee and other unions are behind it.
Authors Hugh Mackenzie, a union economist, and Richard Shillington, a statistician, assert, "Tax cuts implemented by federal and provincial governments over the past 15 years have reduced the living standards of the majority of Canadians. The majority of Canadians would be better off if their governments had invested in improving and expanding local public services instead of cutting taxes."
Mackenzie said, "It's amazing how often you see 'analyses' of the tax system from economists that talk about every purpose and potential impact of the tax system except the most important one -- raising money to pay for public services."
He is right. But what I also found fascinating, from my own reanalysis of the study data for the chart accompanying this column, is that except for those making less than C $30,000 -- the poor and the near poor -- the distribution of benefits per person comes remarkably close to what people would get with zero redistribution.
At C $40,000 to C $50,000, government benefits equal 95 percent of what this group would get with a 1:1 distribution ratio, as shown by the line marked "Ratio: Share of Benefits to Share of Population." Just below this, at C $30,000 to C $40,000, benefits are 105 percent of what that group would get based only on its share of the Canadian population.
The top 3 percent, who make C $200,000 or more, get 88 percent of the benefits they could expect with no redistributive effects.
The fine details of the report show that healthcare, which Canada provides through a universal one-payer system that frees businesses from this burden, declines as a benefit with income.
The greatest benefit goes to those making C $10,000 to C $20,000, who on average receive a health benefit worth $5,364 each. But when you consider that 23 percent of those in this income group are retirees, the number does not seem out of line.
Indeed, this income group gets 1.82 times the benefits that it would under a formula that had no redistributive effects. Why such a large figure? It's the result of the costs of old age.
Canada, like the United States, has a national government retirement income system. It is more generous than the American Social Security system. Combined with provincial plans, government old-age retirement checks provide two-thirds of the income of retirees.
Of the 2.2 million Canadians in this C $10,000 to C $20,000 income category, the study shows that 23 percent are senior citizens. So a half-million Canadians, who for decades paid taxes so that others could have a guaranteed income in their old age, and who made larger incomes when they were working, are now getting paid back. On average, income transfers to those in this income group are C $12,484, more than twice the overall average of just under C $6,000 per person.
Add in the somewhat higher cost of healthcare for this group with its high concentration of older Canadians, and you explain most of the redistribution effect.
But is this redistribution the way politicians talk about it in the United States? Or is this a timing transfer, rather than an income transfer?
Societies by their nature engage in all sorts of transfers based on timing. Children get free educations, with adults paying taxes so that the next generation can create economic activity in the future. This is, in effect, an investment of some of today's resources in the future. This investment pays a societal dividend as children mature and go to work, the degree of rigor introduced into the gray matter between their ears playing a major role in their ability to earn and, thus, the government's ability to tax so that the next generation of children can be educated.
On entering life, people get subsidies, and they get the same on the way out, but in between they finance benefits for those who come before and after. It's the cycle of taxes and benefits.
Look closely at the chart and you will also notice that in Canada, like the United States, it is the affluent who get hit harder than the rich. Those Canadians making C $100,000 to C $120,000 get back in government benefits just 81 percent of what they would receive under a nonredistributive model -- much less than the richest Canadians, who get back 88 percent.
Looked at another way, the bottom line in the chart shows that the poorest Canadians get by far the greatest benefit from government. Their benefits equal 642 percent of their own incomes. This should not be surprising.
The poorest Canadians are largely disabled, sick, or otherwise unproductive in the measurements used in modern cash economies. We do not expect the few people in iron lungs to make a living, so taxes sustain them, and their benefits vastly exceed any income they earn. That kind of support is very costly, but what is the alternative?
We need solid, detailed, and competing analyses of how the American tax system produces benefits and distributes them. What we have now is piecemeal and freighted with ideology.
We have reports on this or that specific benefit or cost. We know how much military spending, for example, contributes to incomes in each state, county, and, most significantly, congressional district. We know how much is paid in subsidies to farmers, including those with Park Avenue addresses. We know how much the George W. Bush, Bill Clinton, and Ronald Reagan tax cuts saved the richest Americans, but too little about what each cost so we can weigh both sides.
A detailed, systematic examination of benefits that matches what the Canadian study did would be a good start. So would understanding how the American tax system, seen as a whole, results in what is pretty much a flat tax, the latest evidence for which is in a report by Citizens for Tax Justice. (For the report, see: http://www.ctj.org/pdf/taxday2009.pdf.)
That report shows that the top 1 percent made 22.2 percent of all reported income and paid 23 percent of all taxes, hardly an unfair burden, especially because their average income was more than $1.4 million last year. At the other end, the poorest 60 million Americans made 3.2 percent of all income and paid 2 percent of all taxes, according to the report's economic model.
America needs research that goes much deeper than the Canadian study. We need to look beyond transfers alone, as the Canadian study did, and to examine them in the context of time so that we can measure what are really investments and what are giveaways. That research would add enormously to the quality of our debate on the costs and burdens of government.
Distribution of Public Benefits in Canada
Source: "Canada's Quiet Bargain: The Benefits of Public Spending,"
Canadian Centre for Policy Alternatives, available at
http://www.growinggap.ca/node/170.
It would also help us recognize the costs of tax cuts and not just the immediate benefits to those who receive them. It would help to know whether a dollar saved by the richest Americans through a tax cut benefits society or costs us several dollars in lost productivity because of inadequate education of the young, as well as inadequate infrastructure to move goods and services and maintain public health.
And what of the effect of tax cuts, and the design of the tax system, on crime?
Is a 10 percent tax cut worth the price if it results in a 1 percent increase in murders? Would you trade an extra $50 a week in your pocket after taxes for a 1 in 50,000 chance that a criminal will shoot your spouse or child or you? How about one in a thousand -- or a million? What is the tax price point?
With more information, we would determine what role, if any, taxes play in these facts:
Canada's murder rate is one-third that of America's.
Canada's homeownership rate is virtually the same as America's even though mortgage interest is not deductible in Canada.
Canada has not had to bail out its banks or investment houses.
Canadian business owners do not have to divert any time from making a profit to dealing with healthcare for themselves and their workers, giving them a competitive edge.
Could a redesign of our tax system to encourage more investment and more labor income lower crime rates, reduce drunk driving and other social pathologies, and make us a more productive and healthier society?
We cannot begin to answer these questions until we have information that enables us to take a comprehensive look at tax policy that goes beyond the burden of taxes to understand public benefits across income classes and across time.
Jon Tasini
Tue Oct 19, 2010
The raid on our country's treasury has been underway for 30 years (and more). The corporate leaders have successfully drained our common wealth, shifting money away from the community and, instead, diverting it into the hands of a few. And now the din is growing for another robbery of the people to the tune of tens of billions of dollars.
It's called "repatriation" of profits. It goes something like this: "we (meaning, big corporations) made a whole bunch of money overseas and we've parked it over there because we didn't want to pay our fair share of taxes. But, out of the goodness of our hearts, if you give us a tax break, then, we will bring the money back to help all our poor citizens". Instead of paying the 35 percent corporate tax rate, these corporate evaders want to pay 5.25 percent--which is almost free money.
The Financial Times reports today that the campaign is gathering steam:
US multinational companies are clamouring for a tax holiday to repatriate billions of dollars "trapped" overseas but are being rebuffed by Barack Obama’s administration.
JPMorgan research estimates that 30-40 per cent of the almost $1,000bn in cash held by non-financial S&P 500 companies is in foreign jurisdictions...
"We do have overseas cash and we would be very supportive of a repatriation holiday," said Keith Sherin, chief financial officer of General Electric. "If you think about it, there is a lot of cash trapped overseas. If companies could bring that back at more competitive tax rates, I think it would be good for the US economy."[emphasis added]
This is a scam. And the Obama Administration should be applauded for, at least for now, opposing the corporate welfare gift.
It's a scam at so many levels.
First, courtesy of Citizens for Tax Justice:
Many U.S.-based corporations currently engage in convoluted tax accounting schemes in order to pretend that they make their profits in tax-haven countries—thus avoiding U.S. taxes on those profits. For example, an American corporation might make sure that some asset, say a logo or a patent, is held by its foreign subsidiary in a country with low or no corporation taxes. The American parent company then "pays" an inflated price to the foreign subsidiary for the use of that asset, and tells the IRS that this expense (the payment for the use of the logo or patent or whatever) greatly reduced or wiped out its gross income, leaving it with no taxable income.
Meanwhile, the foreign subsidiary (which actually might only consist of a post office box) is the alleged recipient of all or most of the profits. Thanks to the rule that lets corporations defer federal taxes on their foreign profits, the parent corporation generally gets to defer paying taxes indefinitely.
Second, cleverly, the corporate lobbyists pushing this idea of free money are trying to use the economic crisis to hold the Congress and the government hostage--an economic crisis caused by some of the very financial firms begging for this taxpayer-sponsored gift. It will be "good for the U.S. economy", they say, because corporations will have a whole lot of cash to then invest in the economy.
But, they already are sitting on a pile of cash--and it isn't going to create new jobs. In fact, we know already that corporations cut hundreds of thousands of jobs and have no intention of bringing back many of those jobs--they've decided to operate with fewer workers.
Moreover, there is nothing in the proposals that has any strings attached to any money brought back: They could easily divert the additional cash to shareholder dividends or--I know we would find this shocking because it would never cross the minds of CEOs--to CEO pay and benefits.
How do we know this? Because we've seen this movie before. CTJ:
Under the amnesty provision enacted as part of the so-called American Jobs Creation Act of 2004, profits were repatriated typically through a dividend made to a U.S. company from its offshore subsidiary, and the U.S. parent company then paid a tax of 5.25 percent on that dividend. About $312 billion of overseas profits were repatriated this way, but this did not have the stimulative effect that lawmakers promised.
Only a small number of companies actually benefitted. Of the estimated 9,700 companies with controlled foreign corporations, only 843 took advantage of the repatriation tax break.
Congress utterly failed to ensure that this select group of companies used their repatriated profits to create jobs. The statute required that the repatriated funds be used for "the reinvestment of such dividend in the United States (other than as payment for executive compensation), including as a source for the funding of worker hiring and training, infrastructure, research and development, capital investments, or the financial stabilization of the corporation for the purposes of job retention or creation."
A 2008 study found that there was no positive correlation between a company’s repatriated earnings and an increase in the permitted uses, but did find a positive correlation between the repatriation and increased repurchases of stock (effectively putting the money in the hands of the shareholders) which was NOT a permitted use under the bill.[emphasis added]
A better approach comes from Business and Investors Against Tax Haven Abuse:
End the tax dodging that occurs when a business incorporates in a tax haven, pretending to be a foreign corporation for U.S. tax purposes while, in reality, being managed and controlled from the United States, and taking advantage of all the commercial, educational and other infrastructure financed by U.S. taxpayers.
End financial gimmickry that allows hedge funds to engage in transactions designed for the sole purpose of avoiding taxes on dividends.
Put the "economic substance doctrine," eliminating tax benefits for transactions that have no real business purpose apart from avoiding taxes, in the Internal Revenue Code.
Impose restrictions on foreign jurisdictions, financial institutions or international transactions that are of primary money laundering concern or that impede U.S. tax enforcement.
Increase disclosure of offshore accounts and close foreign trust, equity swap and other loopholes used to avoid or evade taxes.
Do not let them raid the Treasury again.
By Doug Ford
10/18/2010
As we approach the expiration date at the end of the year for the worst of the Bush Administration tax cuts for the rich, the misinformation mills are operating at full blast.
An enormous amount of money is being spent to try to convince us that the rich pay more than their share in taxes while we lazy folks down below reap all the benefits. They would have us extend the tax benefits that have produced the greatest redistribution of income and concentration of wealth in our history
But investigative reporter David Cay Johnston provides some facts that tell the real story in "Tax Rates for Top 400 Earners Fall as Income Soars, IRS Data," available at TAX.com. In his chart summarizing IRS data from 1992 to 2007, he shows that in 2001, the 400 highest income Americans had an average income of $158,812,000 on which they paid an effective tax rate of 22.85 percent. In the same year, the average gross income for the bottom 90 percent of Americans was $34,000.
Six years later, in 2007 after the Bush tax cuts, the average income of the top 400 had more than doubled to $356,722,000, but their effective tax rate had been cut to 16.62 percent. In the same six years, the average gross income of the bottom 90 percent had decreased to $33,546. While the lower 90 percent enjoyed a very modest reduction in their income taxes over the period, Social Security, Medicare and unemployment taxes combined, added up to more than their income taxes, so they
paid a much larger proportion of their income to the federal government than did the 400 highest income Americans, who pay only a tiny fraction of their income for these other taxes.
One result of the Bush tax policies was the near collapse of our entire economic system in 2008. To continue the current tax system, that so greatly benefits the ultra-wealthy at the expense of the rest of us, would ensure the breakdown of our economy and could produce the darkest times ever in world history -- even worse than the wars and revolutions of the past century.
Our tax picture in California is similarly hazardous to our economic health. According to Robert S. McIntyre of the Citizens for Tax Justice in a presentation to the California Commission on the 21st Century Economy Regarding Tax Fairness and Economic Growth, the lowest income 20 percent of Californians pay 11.1 percent of their income in state taxes while the top 1 percent pay only 7.8 percent (after federal tax offsets).
Most of the Republicans that I know of, who are running for state and federal offices in the coming election, would have us continue or accelerate our movement down the road to disaster. Although I was a Republican for more than 35 years, I'll be voting for Democrats this year.
The author is retired from the U.S. Air Force, lives in Dixon and serves on the Solano County Board of Education.
By Bill Knight
GateHouse News Service
Oct 04, 2010
Republicans hope to give $10 trillion to the rich in the next decade, including making permanent Bush’s tax cuts, set to expire this year. President Obama favors returning tax rates for the wealthiest Americans to what they were in the 1990s. Specifically, Obama would restore the tax rates for the top 1.9 percent — for individuals with $200,000 annual income and households with $250,000 annual income, which could generate $238 billion more next year alone.
For the top rate, the rates would go back from 35 to 39.6 percent. The next highest bracket, 33 percent, would revert to 36 percent.
Republicans claim their tax package, typically misnamed “The Economic Freedom Act” (HR 5029), will create jobs. The bill would hand out $6.9 trillion in tax cuts for the rich and big business over 10 years, when the beneficiaries also would get an additional $3.1 trillion from extending Bush’s temporary tax cuts. Of all that money, 62 percent would go to the top 1 percent of earners, according to an analysis by Citizens for Tax Justice.
The “trickle-down” theory isn’t new. It’s been around since Ronald Reagan — and decades before.
In 1896, Democratic presidential contender William Jennings Bryan said, “There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous, their prosperity will find its way up and through every class that rests upon it.”
On Sept. 23, what passes for Democrats today postponed a pre-election showdown over Republicans squawking about budget deficits and national debt while worsening them with tax breaks for the rich, and over the GOP directly defending gifts for about 5 million wealthy Americans while leaving out the other 300 million of us.
Jack Metzgar of the Chicago Center for Working Class Studies explains the GOP’s tortured rationale for helping those who don’t need help: “Their theory is that rich people create jobs by investing in companies: little ones they own themselves or big ones they own stock in.”
The problem, of course, is that they haven’t and they aren’t — even though they could.
The 3,000 largest publicly traded U.S. companies are sitting on “$2.9 trillion in cash and short-term investments,” according to Business Week magazine. Meanwhile, workers, consumers and most state governments are struggling to pay bills and provide for basics.
The nonpartisan Congressional Budget Office (CBO) analyzed 11 options for stimulating the economy and concluded that extending Bush’s tax cuts was the worst — the lowest “return on investment” of any option. Besides being inefficient, the Republican scheme would shake investor confidence in the economy, House Majority Leader Steny Hoyer (D-Md.) told Press Associates — especially in the government’s ability to control its deficit. Hoyer said the GOP’s new tax cuts — including eliminating capital-gains taxes and allowing businesses to immediately write off the total cost of new equipment — would make a bad situation worse.
Bush’s tax cuts for the rich “are expensive for the economy,” Hoyer added.
Even Republican Alan Greenspan, former chairman of the Federal Reserve, argues for letting the temporary tax cuts expire — all of them.
Democrats propose increasing aid to the unemployed for about $34 billion, creating 300,000 to 600,000 jobs in the next 15 months, and also increasing aid to the states for some $26 billion, adding another 80,000 to 180,000 jobs next year.
Compare that to Republicans’ cutting taxes for the elite, costing $70 billion and creating — in the rosiest of scenarios — 70,000 to 210,000 jobs.
Exactly! The GOP’s tax cut for the rich would cost twice as much and — at best — create one-sixth or one-eighth the number of jobs.
If the government wants to help the economy, the CBO says, it would be better to spend the money building roads and bridges, cutting payroll taxes, or helping states. Tax Policy Center co-director William Gale says the Bush tax cuts were never intended to be assistance for a bad economy anyway. When they passed in 2001, the economy was booming and the federal government was running a surplus.
Now, it’s GOP politics. U.S. Sen. Dick Durbin (D-Ill.) said, “We are not going to pass what needs to be passed to change this either in the Senate or in the House before the election.
“There’s no evidence of any bipartisan spirit to deal with the bigger issues,” he added.
Bryan, the great populist, more than 100 years ago framed the fight as one between “the idle holders of idle capital and the struggling masses who produce the wealth and pay the taxes of the country. Which side shall the Democratic Party fight: upon the side of the idle holders of idle capital, or upon the side of the struggling masses?”
Contact Bill at bill.knight@hotmail.com.
Jane Whitesides Glasgow
October 3, 2010
John Boehner and Mitch McConnell are using spurious estimates to argue over the Bush tax cuts. One is always entitled to one's own opinion, but not to one's own facts.
Repealing the tax cuts for those earning over $250,000 would not affect 50 percent of small businesses -- unless, you include people who make a lot of money, but have few employees, such as hedge fund managers, the president, John Grisham, Tiger Woods and sole-practice trial lawyers. Estimates from Citizens for Tax Justice are that 2-3 percent of small business owners would be affected.
According to the Center on Budget and Policy Priorities, by extending the 2001 and 2003 tax cuts for those earning over 250,000, only the top 3 percent of people with any business income would benefit. Businesses don't hire because of tax cuts: they hire based on demand. Businesses are hurt by a lagging economy. Extending the tax cuts and adding a trillion dollars to deficits and debt over the next decade will deter robust growth, and truly hurt all businesses.
The Congressional Budget Office found that the cost of legislation enacted 2001-7 resulted in the tax cuts being responsible for 48 percent of the deficit. While we may argue over what we spend on, starving essential services is inefficient and raises costs over time.
Fiscal responsibility and revenue enhancement are needed to put our financial house in order. While extending the tax cuts for the top 2 percent of earners doesn't make good business sense, it also doesn't make sense in terms of fairness.
The Tax Policy Center found in 2007 that the effective tax rate for the top 400 families was 16.6 percent. Not exactly usury rates.
By Jay Heflin
10/01/10
Organizations representing a wide array of constituencies have called on Congress to ban tax patents before the end of the year, warning that a failure to do so will inhibit tax preparers from using strategies that could save their clients money.
"Tax advisors, who generally are not patent experts, have the burden to be aware of such patents, and either provide tax advice that complies with the patent holders' requirements, risk a lawsuit for themselves and their client, or potentially not provide the most advantageous advice to clients," the group stated in a letter to lawmakers. "Not surprisingly, these patents create a highly burdensome level of cost ultimately borne by taxpayers."
To date, 117 tax strategy patents have been issued by the U.S. Patent and Trademark Office, and about 151 are pending.
This means a tax preparer must search the patent database before recommending a strategy to a client or risk being fined for improperly employing the strategy.
"A legislative solution must be pursued immediately if we are to provide taxpayers with equal access to all available avenues of federal tax compliance," the letter states.
Existing patents already affect tax decisions on retirement plans, real-estate transaction and estate planning.
Patents that are pending would "affect taxpayers' ability to create a financial plan for funding college education; utilize incentive programs for health care saving account cards; insure against tax liabilities, and use life insurance to generate income," the letter states.
Legislation banning these patents have been introduced in both chambers but has failed to gain traction in the Senate.
The letter was signed by U.S. PIRG, the AICPA, the American Association of Attorney-Certified Public Accountants, the American College of Tax Counsel and Citizens for Tax Justice.